Will Dollar Weaken Further?

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Market Drivers for July 23, 2013
USD/JPY tests 99.00 but rebounds
UK BBA mortgages miss their mark
Nikkei 0.82% Europe 0.37%
Oil $106/bbl
Gold $1329/oz.

Europe and Asia:
EUR Euro-Zone Consumer Confidence n/a
GBP BBA Loans for House Purchase 37.3K vs. 38.5K

North America:
USD House Price Index 9:00
CAD Retail Sales 8:30

A very quiet night in the currency market as the dog days of summer are fully upon us with most high beta currencies carving out miniscule 30 pip ranges and only USD/JPY showing some volatility as the pair once again tried to run stops at the 99.00 level.

With virtually no economic data on the calendar for the second day in a row, currencies spent the early European session trading listlessly near yesterday’s closing levels with EUR/USD trying but so far failing to climb above the key 1.3200 level.

Despite only minor evidence of economic improvement in the region, the euro has been surprisingly buoyant over the past several weeks, rising from the the low of 1.2800 to trade near the 1.3200 level. Much of the rise had little to do with EZ dynamics. The rise in the EUR/USD is really the function of the selloff in the greenback as market expectations of QE tapering by the Fed have changed dramatically over the past 10 days.

Chairman Bernanke’s dovish rhetoric which emphasized that US rates are likely to remain low for the foreseeable future, along with decidedly weaker US economic data have shifted the market perception and generated a broad dollar selloff.

Having now reached key support levels, it becomes an open question as to whether the dollar will weaken further. With little economic data on the calendar for the rest of the day, currencies could continue to seesaw well into North American trade. Tomorrow however, the market will get a glimpse of the EZ Flash PMI data and if the news out of Europe shows some improvement – and better yet a move towards the 50 boom/bust line the EUR/USD could finally bust through the 1.3200 barrier as investor sentiment towards the EZ improves.

Meanwhile, barring any unexpected exogenous shocks, the narrow ranges are likely to persist with USD/JPY trading 99.00-100.00 EUR/USD holding between 1.3150-1.3200 and cable steady above the 1.5300 level. ;

Boris Schlossberg
Managing Director

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